Speculators are gathering around the beleaguered yen and positioning is by no means extended, suggesting there’s still room for bears to pile in.

With Japan’s currency just a whisker away from breaking down to a 24-year low, position data from hedge funds to option traders are nowhere near historic levels. Citigroup’s ‘pain’ index for the yen -- a gauge of trader positioning -- is well off the lows of the year.

For the dollar-yen, there is “likely to be no effective ceiling until either global bond yields are in firm retreat or the Bank of Japan caves on its commitment to capping JGB yields under its yield-curve-control policy,” John Hardy, head of FX strategist at Saxo Bank, wrote in a note.

Here are three charts that show how traders are set up:

No Pain, No Gain

Citigroup Inc.’s gauge of trader sentiment remains in bearish territory, although at minus 44 points, it’s still a fair way from this year’s low of minus 79 in January. That was the lowest since 2007.

Short Shrift

Hedge funds have been yen bears since March of last year, but at levels in line with much of the last decade, according to non-commercial position data from the Commodity Futures Trading Commission. Bearish bets would have to double to match the record net short position seen in 2007, the data show.

Risk On

One-month risk reversals on the yen  -- a gauge of expected direction over that time frame from the options market -- show traders were bracing for bigger yen losses in March and May, according to data compiled by Bloomberg. The same pattern is evident for 3-month, 6-month and one-year equivalents.

“We expect the currency to remain weak as long as the Bank of Japan maintains its ultra-dovish stance and the Fed continues to hike rates,” wrote Bill Maldonado, chief investment officer at Eastspring Investments, in a recent note.

Source:
courtesy of BLOOMBERG

by Ruth Carson and Cormac Mullen

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